Southwest Airlines Introduces Checked Baggage Fees
In a groundbreaking shift from its long-term policies, Southwest Airlines is set to begin charging passengers for checked baggage. This move comes after the airline faced pressure from activist investor Elliott Investment Management, which has been advocating for significant changes within the company.
Significant Policy Change
Southwest, known for its “two bags fly free” policy for over fifty years, is now seeking additional revenue streams in a highly competitive market. Effective for tickets purchased starting May 28, fees will apply to checked bags for most fare classes. However, exceptions remain for elite passengers and credit card holders:
- Holders of A-List Preferred status will continue to enjoy two free checked bags.
- A-List members will receive one free checked bag.
- Southwest credit card users will also be entitled to one free checked bag.
Industry Context and Financial Implications
The introduction of baggage fees aligns Southwest with its competitors, many of whom already derive substantial revenue from such charges. According to federal data, U.S. airlines collected over $5 billion in baggage fees last year.
While the exact fee has not been disclosed, major carriers like Delta, American, and United charge around $35 for the first checked bag. Following the announcement, Southwest’s shares saw an approximate 8% increase, indicating investor confidence in the new strategy.
Changing Customer Dynamics
Historically, Southwest executives highlighted the baggage policy as a pivotal aspect influencing customer choice. CEO Bob Jordan noted in a July earnings call that the policy was among the top reasons for selecting the airline. However, recent comments from COO Andrew Watterson reveal a shift in viewpoint, emphasizing the need for additional revenue to address rising costs.
Jordan stated, “Our new approach is expected to bolster our co-branded credit card sign-ups, reflecting a change in the market dynamics we need to adapt to.” This new strategy follows months of research indicating that maintaining customer loyalty might not be as beneficial as previously thought.
Additional Changes and Future Directions
In tandem with the baggage fee introduction, Southwest will also introduce a basic economy fare, a move that aligns it with industry standards. Changes to the Rapid Rewards program include adjusted mileage earning based on fare purchase, and the expiration policy for flight credits is now one year or less for newly purchased tickets.
These transformations come at a time when Southwest is also trimming costs and restructuring operations, including job reductions affecting about 15% of corporate staff. CEO Jordan declared, “We are at a pivotal moment as we transition Southwest Airlines into a more agile organization.”
Conclusion
The introduction of checked baggage fees marks a significant change for Southwest Airlines, signaling a departure from its traditional customer-friendly policies. As the company navigates a competitive landscape marked by rising operational costs, it remains to be seen how these changes will impact customer loyalty and overall market share.
